Victoria's Secret & Co.

Good morning. My name is Ivy and I will be your conference operator today. At this time, I'd like to welcome everybody to the Victoria's Secrets and Company third quarter 2023 earnings conference call. Please be advised that today's conference is being recorded and all parties will remain in a listen-only mode until the question and answer session of today's call. I would now like to turn the call over to Mr. Kevin Wink, Vice President of External Financial Reporting and Investor Relations at Victoria's Secrets and Company. Kevin, you may begin.

Thank you, Ivy. Good morning, and welcome to Victoria's Secret & Company's third quarter earnings conference call for the period ending October 28, 2023. As a matter of formality, I would like to remind you that any forward-looking statements we may make today are subject to our safe harbor statements found in our SEC filings and in our press releases. Joining me on the call today is CEO Martin Waters and CFO Tim Johnson. We are available today for up to 45 minutes to answer any questions. Certain results we discussed on the call today are adjusted results and exclude the impact of certain items described in our press release and our SEC filings. Reconciliations of these and other non-GAAP measures to the most comparable GAAP measures are included in our press release, our SEC filings, and the investor presentation posted on the investor section of our website. Thanks, and now I'll turn the call over to Martin.

Thanks, Kevin, and good morning, everyone. Before we dive right in, I want to first share my appreciation and gratitude for the hard work and dedication of our associates and partners around the world. I'm especially thankful for the team's continued commitment and for all they're doing as we move forward throughout the holiday season. I speak to you today very energized with our holiday season now in full swing and with excitement about our sales performance in November to start the fourth quarter. In North America, both in stores and online, the November sales and margin result was our best monthly performance in nearly two years, which we believe is evidence our initiatives are working and is led by strong response to holiday, giftable merchandise assortment, improving customer experiences, a powerful marketing message with Mariah Carey. Our international business has great momentum. Our footprint is growing both in stores and online. Our partners are performing very well, and we continue to be excited about performance in China. As I have consistently talked about, our teams have been working tirelessly on multiple growth initiatives designed to create momentum as we enter the second half of the year and into the holiday season. And we're delivering on those key initiatives, initiatives such as new multi-tender loyalty program, new customer experience enhancements in our digital business, product improvements and launches to enhance Victoria's Secret brand and accelerate our beauty business, a reimagined merchandise strategy for our pink brand, and, of course, the return of the iconic fashion show with the Victoria's Secret 2023 World Tour. Now, turning to the third quarter for a moment, we delivered results within our guidance range, and our sales trend in North America continued to improve as planned each month throughout the quarter, with October being the strongest month of the year, now happily exceeded by November, of course. Outside of North America, our business continues to provide profitable growth across stores and digital, with international system-wide retail sales up high teens in the quarter, driven by growth in China and globally with our franchise partners. Our teams are doing an excellent job of managing selling margins, diligently controlling costs, and delivered inventory levels at Victoria's Secret and Pink down 9% to last year, and we have agility heading into the holiday season and into the new year. Overall, sales declined 4% in the quarter compared to last year, which was at the midpoint of our guidance. In North America, sales trends improved in the quarter in both stores and digital, driven by sequential improvement from last year in average basket size and in traffic. Conversion in our digital channel also improved as compared to second quarter, and it was roughly the same in our stores business. Adore Me sales were up year over year again this quarter and represented about five percentage points of total sales growth for VS & Co. in the quarter. From a merchandising perspective, external market data indicates that sales for the Intimate market in North America as a whole decreased mid-single digits in the quarter compared to last year. Importantly, we remain the leader in market share for the Intimate category, including both bras and panties. Our share remained essentially flat, with digital share up slightly and stores share down slightly. From a merchandise category perspective, starting with Victoria's Secret, our beauty business continues to be our best performing category. We also saw significant trend improvement in panties, bras, and sleepwear in the quarter. Within pink, intimates and sleepwear outperformed apparel. Our new reimagined pink apparel assortment began delivering to our stores and digital customers during the quarter. We acknowledge that it will take time to turn around that business, and believe we're on a path towards improvement with some definite green shoots of recovery. We estimate that the apparel challenges in pink negatively impacted the third quarter sales result by approximately three to four points. Aside from the financials, over the last 90 days, we've executed several key actions in support of our strategy and brand positioning for the long term. For example, our loyalty program now has more than 22 million members, who drive approximately 75% of our sales on a weekly basis. We kicked off the holiday season with new product arrivals and a powerful marketing message featuring Mariah. From a technology perspective, we launched over 50 new releases, impacting the overall customer experience on our digital platforms and apps. And we expanded our store of the future fleet to 71 stores, or approximately 8% of the fleet in North America, and we'll be at 85 stores by the end of the year. Looking forward, our outlook for the fourth quarter embeds results from November, and overall for the quarter we expect sales to increase in the range of 2% to 4% compared to last year. Quarter to date through Cyber Monday, we estimate we have generated roughly one-third of our fourth quarter sales, and obviously we have many very large days and weeks to come in December. We're forecasting an adjusted sales operating income in the range of $245 to $285 million for the fourth quarter. And for the full year, 2023, we're forecasting sales to decrease in the range of 2% to 3% compared to last year, and we expect adjusted operating income to be in the range of $290 to $330 million. At our investor day in October, we discussed three strategic priorities. Number one, accelerate the core. Two, ignite growth. Three, transform the foundation. And in particular, spend a lot of time on our plans for our key area of focus, which is obviously the North American business. With the long-term health of business in mind, we're energized by the start of the holiday season and the positive signs in the business and remain committed to our initiatives designed to leverage our market leadership position and unlock our opportunity to convert significant cultural influence into long-term financial growth. Thank you, and that concludes our prepared remarks. At this time, we'd be more than happy to take whatever questions you might have.